Bankers’ Behavior
This week’s Barron’s has an interesting set of quotes gathered by asking various people the following question about Bankers: Do the bailed-out banks owe a debt to society for being saved?
Here are a few answers :
“Banks have a terrible image problem..but their main obligation is to shareholders who want them to be strong so they don’t have to suffer this crisis again.”
-Robert Litan
Senior fellow, Brookings Institution_____________
“They are largely responsible for the crisis and have a moral responsibility to fix it. Not with money, but by addressing ‘too big to fail’ by becoming much smaller. To block reform and change is simply unacceptable.”
-Simon Johnson
Economics and management professor, MIT_____________
“The banks owe a primary duty to shareholders. But it’s the government’s job to establish the incentives that determine private-sector behavior…Obama and Congress have failed to do this. Banks are an easy target, but TARP was a moronic program.”
-Marshall Auerback
Global portfolio strategist, RAB Capital_____________
“The banks got a lifeline from the government. That ‘too big to fail’ insurance policy is worth a lot, and they certainly haven’t paid for that yet.”
-Ann Lee
Adjunct economics professor, New York University_____________
>
Source:
They Said What? Bankers’ Behavior
ROBIN GOLDWYN BLUMENTHAL
Barron’s, December 21, 2009
http://online.barrons.com/article/SB126118056355297807.html
Tweet
Facebook
Reddit
Digg this!
December 19th, 2009 at 9:07 am
Banks are not like an ordinary business so the argument that they have a duty only to shareholders does not fly. Because they have the ability to literally print money by lending it into existence they are in a privileged position that ordinary businesses do not have. Therefore their cartel is obligated to the society that gives them special privilege.
Personally, I think the structure of fractional reserve banking should be broken down and returned to the hell from which it was birthed
December 19th, 2009 at 9:46 am
Banks only need to do what Goldman Sachs professes to but does not do.
Take care of your customers interests and the rewards shall follow.
December 19th, 2009 at 10:02 am
Stiglitz Says Banking Problems Are Now Bigger Than Pre-Lehman
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYdgQkXu9eBg
… “In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” [Joseph] Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”
…
“It’s an outrage,” especially “in the U.S. where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary. Yes they’ll do something, the question is: Will they do as much as required?”
“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said. The U.S. will “grow but not enough to offset the increase in the population,” he said, adding that “if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.”
The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government, he said.
“The question then is who is going to finance the U.S. government,” Stiglitz said.
December 19th, 2009 at 10:08 am
“….but TARP was a moronic program.”
Keep in mind that TARP was the love child of Dubya and Hank Paulson – not ordinary morons, really terrific morons.
December 19th, 2009 at 10:28 am
BR – Cue the Vaughn Monroe, the Bing Crosby – the weather outside is frightful etc… I’m dreaming of…
December 19th, 2009 at 10:29 am
Banks aren’t lending to prospective home buyers, small businesses and real estate developers because bankers recognize the obvious — we’re in a depression; many of those loans won’t get repaid. Of course, as bankers refuse to lend, the depression becomes a self-fulfilling prophecy. But since society is burdened with too much debt, piling on more debt would not be the solution in any case. There is no smooth, painless route back to the easy-money false prosperity we grew accustomed to as our birthright.
December 19th, 2009 at 10:46 am
Obama’s “you owe us” line is the height of naivete’ and tells us a lot about him. These people are fools if they think the banksters will do anything but throw us some crumbs to dampen the outrage. We have to take back our banking and monetary system and put these people in their place. Their hubris is beyond palpable, it stinks to high heaven.
December 19th, 2009 at 10:46 am
“…Because they have the ability to literally print money by lending it into existence they are in a privileged position that ordinary businesses do not have. Therefore their cartel is obligated to the society that gives them special privilege.
Personally, I think the structure of fractional reserve banking should be broken down and returned to the hell from which it was birthed”-HTCMSI, above
unless, that idea, as addressed, above, is countenanced in any of the “Answers” being profferred to the set-piece:”Do the bailed-out banks owe a debt to society for being saved?”, they are, both, the Answer and the ‘Answeree’, quite simply, FOS.
but, given http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Federal+Reserve+has+bought+Economics
what else, really, should we expect, than the answers presented by the assorted ‘mouthpieces’, assembled by the MSM, for our, collective, destraction?
please, do not begin Thinking for Yourself, in keeping with the Season, you will be ‘Rudolphed’ (no Reindeer Games for you!)
Ignorance, rather than Bliss, is Slavery, and, just, “Guess What?” will Set you Free.
paraphrasing Franklin, ~”If you can keep it.”
http://www.thefreedictionary.com/countenanced
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=The+Creature+from+Jekyll+Island
(the skips, if any, above, shouldn’t be too great a jump) yes, read-logical
December 19th, 2009 at 10:54 am
km4,
nice point out, re: Stiglitz’ piece/POV
w/this ““The problems are worse than they were in 2007 before the crisis.””
alone, He presents ‘too much’ *Truth-telling for the “All the News, That’s Fit to Print”-metric.
“The Mighty Wurlitzer — How the CIA Played America”
http://www.hup.harvard.edu/catalog/WILMIG.html
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=The+Mighty+Wurlitzer+CIA
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=CIA+Operation+Mockingbird
LSS: you know it’s been going on a long time if, even, Hartford puts the Idea to Press..
December 19th, 2009 at 10:54 am
The question is posed completely incorrectly. It should be: Does society owe a debt to banks for being saved? And the answer is Yes, about six generations worth. Now get back to work you slackers, and start paying off that debt!
December 19th, 2009 at 11:02 am
Mine’s paid. Of course, I own very little but at least it is all owned! The only part of my debt that isn’t paid is the public debt that my government has squandered. Since I didn’t and still don’t have control of that checkbook I don’t feel morally obligated to it and, at this point, am probably willing to be beaten down into the ground to defend that belief knowing that the one holding the club will be borrowing on an eternal debt that they will definitely have to pay!
December 19th, 2009 at 11:03 am
Peter Schiff makes an interesting comment in Barron’s today:
“The gross-domestic-product yardstick shows an economy returning to growth. However, this measure has deep flaws that render it almost useless for judging the soundness of an economy. Currently, the figures are merely reporting increasing indebtedness as growth. Using GDP as the main financial indicator is equivalent to judging a man’s success by the cost of his house and car…The figures merely indicate a level of spending and have nothing to do with earning power.”
Our currency is basically just debt…so as the economy contracts and debt is defaulted or retired, the dollar will rally…that will reduce inlation…it is a self-reinforcing deflationary spiral. Since we have about 30Trillion in excess debt and the Fed cannot monetize that much debt, we are in for a massive deflation, dollar rally and equity crash. Could start at anytime….it is being delayed by a weak levee.
December 19th, 2009 at 11:43 am
Bankers have the built-in incentive to make fortunes by growing their banks, meaning leveraging as much as possible. Customers are protected by FDIC, so they don’t care. There is little market discipline from competitors. So the bankers play the game with the Fed of producing financing beyond what the Fed thinks it is allowing by its reserve requirements.
Bankers are not going to act differently. It is up to the state to cut them down to a size that can be analyzed efficiently and then use the tools of leverage ratios and restrictions on “innovation” rather than reserve requirements to keep them from growing at a pace that creates the speculative and Ponzi instability.
Unfortunately it is too late. The flip side of all that leverage is a debt in the business and household sectors that is impossible to carry very long. All the fuss about government debt is gibberish if it ignores the immense private debt.
December 19th, 2009 at 11:50 am
“It’s an outrage,” especially “in the U.S. where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary….”
Lets see, Wall Street gave Rahm Emanuel $18 million, Summers $8+ million. Geithner will need a job in a couple of years. The Democratic Party got $300 million, the Republican Party wants to deregulate even more…….. nope, change not gonna happen here!
December 19th, 2009 at 12:08 pm
In essence there is a put on bank capital is sold by the FDIC with recourse to the US taxpayer. The volatility of this option has exploded as of late as anyone can see. Has this option been sold too cheaply? Probably. Should the pricing of the option be variable depending upon the nature of the institutions activities and Total Assets. Probably. But this is also secondary to the incentives in the system.
December 19th, 2009 at 12:17 pm
There’s another way to see this situation. Through the lens of what Elliott referred to as social mood. To some it seems wrong and to others it can be complicated. In the end, social mood is nothing more than the our expression as social animals. We herd around our collective outlook toward an always uncertain future. If you skip using it to make narrow predictions and just look at it from that simple, broad place, everything Mark E Hoffer says above is right on….in fact we are naturally coming around to it (albeit slowly). (one small change…our shared opinions change as our perspective of the future changes)
Whether we do it through regulation or social revolt, we will collectively restrain and change banking in the years ahead. Businesses lag social change in shared values. The big names in the world of banking are the main target precisely because they are who we think of first and their lagging behaviors will be deemed unsuitable going forward…why? because as social mood changes our shared values change (like a moving average) according to broad themes. Simple flips in broad polar shared ideas begin this kind of social change. The key point is how this is not determined…or destiny-like. We have to make the incremental changes happen and they always run the risk of being wrong or not good enough (just like repealing Glass Steagall is now viewed) . Like the Ben Franklin quote says, “if you can hang onto it”
Blogs are a great incremental development that fit perfectly with the large macro changes we have begun and this thread can be a great start to something, potentially. It’s worth looking into. Social mood isn’t about “get rich quick” or being smarter. It’s about how we are all members of groups as much as free thinkers and these groups are going somewhere just like we are individually. We have to be able to be both. So yes, banks and bankers are very socially indebted and will stay so even after they pay back everything if they ever do…which I doubt. Businesses are tools for a society. That is not a red or blue statement….it just is.
December 19th, 2009 at 12:23 pm
“Currently, the figures are merely reporting increasing indebtedness as growth.”
Excellent point (Schiff via Steve Barry post). That’s exactly what we did in 2006-2007: we counted unsustainable borrowing as GDP growth. A rational economist would go back and adjust the GDP numbers from those years by subtracting out what later collapsed. In other words, the collapse really happened in 2006-2007, but didn’t go on the books until 2008-2009. Currently we are ‘buying’ (bribing is an even better word) the GDP stats by issuing debt to do stimulus… also counting a future debt as a current. That debt obligation must logically be subtracted from the GDP number to judge whether there is real economic growth. You don’t calculate your personal net worth by adding in the worth of your house but omitting the obligation of your mortgage.
December 19th, 2009 at 1:12 pm
Wally:
We actually did that from about 1950 through 2007. It was actually healthy till about 1987. Since then, it has gotten more and more out of hand to thepoint where, as Demand Side says, it is too late. It has to end badly.
http://www.urbandigs.com/2008/08/peak_credit_what_that_may_mean.html
December 19th, 2009 at 2:12 pm
Maybe we ought to treat financial criminals more like the Chinese do:
Businesswoman sentenced to death for defrauding investors
HANGZHOU, Dec. 18 (Xinhua) — A businesswoman was sentenced to death in east China’s Zhejiang Province for defrauding investors of 384 million yuan (56 million U.S. dollars) on Friday.
Wu Ying, 28, former owner of the Zhejiang-based Bense Holding Group, amassed the funds by promising high returns to investors between May 2005 and February 2007, according to the Intermediate People’s Court of Jinhua City.
The money was used for Wu’s personal consumption and in paying back the loans and operation costs of her company, said the court.
http://news.xinhuanet.com/english/2009-12/18/content_12667723.htm
December 19th, 2009 at 3:53 pm
ok. confession time. I have no financial training, and am begging to be pointed at facts that invalidate my commonsense views….Namely, that 1) bubbles can only get blown up big enough to hurt a lot of people if the govt is backstopping the risk in some way and 2) normal-sized bubbles have to be allowed to burst or markets cannot function (the moral hazard idea). The long and short of this is that the reforms that would really help, all involve less govt. But I would rather wait for Godot than less govt to arrive…Like inflation, govt is sticky downward. Maybe after a total collapse and the emergence of a REAL new world order we could see change…. I don’t see anything useful happening short of that…..
December 19th, 2009 at 5:28 pm
@ engineerd1
The housing bubble happened more due to lack of government regs than any backstopping. Millions have been foreclosed without any backstop whatsoever; banks made loans without any documentation and in many cases this meant without any income or net worth. Blaming the government for this egregious private sector behavior is a bit like blaming the Taliban for our lack of morality. Cute but no cigar. Go back to engineering, it may be simpler.
SS
December 19th, 2009 at 5:56 pm
@ engineerd1
Before last year I would have agreed with you that bubbles can only get big with a government backstop. The Investment Banks have proven this wrong. They have taken self-centered greed to a level that was unfathomable to many, including the likes of Greenspan & Bernanke.
They have demonstrated that it is in fact possible to buy enough members of Congress and the Administration to achieve self serving gains. I guess from this perspective, your are right. The Investment Banks calculate that since they “own” the government, they are assured a government backstop in the event their bets go bad.
So in writing this, I am now convinced that you are correct!
December 19th, 2009 at 7:58 pm
Maybe we ought to treat financial criminals more like the Chinese do
It certainly would feel better to handle things that way, but the fact that they are still executing people based on these crimes demonstrates that it doesn’t exactly dissuade future similar behavior. Personally, I’m more for the, give them a hairy, sweaty cell mate who calls them Sheila, and made them pick up trash on the side of the highway in chains and orange jumpsuits for the next 30 years.
December 20th, 2009 at 8:28 am
[...] Do the bailed-out banks owe a debt to society for being saved? (Big Picture) [...]
December 20th, 2009 at 10:36 am
engineerd1,
see bsneath’s comment.
SS is the one, in this context, that ‘should be sticking to something else’..
this, specifically, :”1) bubbles can only get blown up big enough to hurt a lot of people if the govt is backstopping the risk in some way”
is, exactly, correct.
it where’s the old adage: “The ~Free Market will create Millionaires, but, only, The “Gov’t” can create Billionaires” comes from…
and, this: “The long and short of this is that the reforms that would really help, all involve less govt.” — it has, always, been such.
People have to be Responsible, no other entity can be responsible for those who choose not to be, for themselves.
December 20th, 2009 at 11:51 am
Banks have a primary obligation to DEPOSITORS, not to shareholders.
I did not see one instance of the word “depositor” in the quoted quotes. That shows you right there what is wrong with bankers and banking.
December 20th, 2009 at 11:55 am
If you split up “too big to fail” you will still have the problem of “too many to fail all at the same time”.
The problem is that all the banks follow the leader banks, and they all make the same lending mistakes, although to somewhat different degrees.
It is the total sum of lost depositor money that is the problem. The losses are spread among big and small alike.
There is no easy solution after the fact. The only prevention is airtight regulation.
December 20th, 2009 at 1:11 pm
“The only prevention is airtight regulation.”– jus7tme
“…Thomas Jefferson is also attributed with saying, “The Price of Liberty is Eternal Vigilance.”
On the morning of June 3, 1779, liberty cost a dear price when vigilance was lax in the hamlet of Crompond. The parsonage of the First Presbyterian Church in Crompond was used as a meeting place and a munitions storage house during the Revolution. Col. Drakes 3rd and 4th NY Militia had their headquarters and barracks there. It was a rallying place for the local militia as well as the meeting place of the local “Committee of safety” whose task it was to “Disarm the disaffected and punish the incorrigible” meaning the local Tories…”
http://www.paulmartinart.com/EternalVigilance.html
We can, either, choose to Guard ourselves, or We will be, surely, guarded by others..
then, if the latter, the old Query: “Who’ll watch the Watchers?” (will the ‘Watchers’ “Open-Source” that, too?)